Rising mortgage rates hitting younger generations harder due to the rising cost of borrowing

 New data finds that 29% of Brits aged 25-34 have looked into changing their mortgage deals as they struggle to keep up with payments, while this figure lowers to 6% for Brits aged 55-64

Simon Bath, property expert and CEO of iPlace Global, discusses what the current state of the mortgage market means for younger homeowners

After the Bank of England raised interest rates a total of nine times since December 2021, many experts are evaluating the long-term effects it stands to have on the housing market. This come as the wider cost-of-living crisis has already taken its toll on individuals across the housing spectrum, forcing many to reevaluate their financial position. According to the Office for National Statistics (ONS), 1.4 million fixed rate mortgages will have to be renewed in 2023. A new study courtesy of property technology company, iPlace Global, has found that rising mortgage rates are hitting the younger generation of mortgage holders hardest due to the rising cost of borrowing. 29% of Brits aged 25-34 have looked into changing their mortgage deals as they struggle to keep up with payments, while figure lowers to 13% for Brits aged 45-54 and 6% for Brits aged 55-64. Over 800,000 UK households are set to see their mortgage rates more than double this year as they come off low fixed-rate deals, adding to the pressure on living standards.

In light of this, Simon Bath, CEO and founder of iPlace Global, explains that at this stage in life, younger borrowers are less likely to have as much savings to fall back on in comparison to older homeowners, so an increase in mortgage repayments could mean they end up building a mountain of short-term debt and experience insurmountable stress in their daily lives. Although the headline rate of inflation is expected to start to fall in 2023, general inflation still sits at 9.3% according to the ONS. Experts warn that the cost of living crisis is far from over, with younger households being more vulnerable to changes in the wider economic outlook.

Some lenders are set to trim mortgage rates this week as the housing market slows, with TSB slashing their five-year fixed rate mortgages by up to 1.3% and Nationwide cutting theirs by up to 0.6% from this week. On average, mortgage rates have fallen since the tumultuous period following the September mini-budget, but nonetheless they are still higher than they were at the beginning of 2022. The rate for a typical, new two-year fixed-rate home loan peaked at 6.65% in October, but has now dropped to 5.78%. Five-year deals, which had also topped 6%, now typically have a rate of 5.61%. iPlace Global’s data reflects how the younger generation of homeowners are feeling the effects of changes in mortgage rates more acutely than the older generations; 35% of Brits aged 25-34 have stated that they need to make swift movements to adjust their mortgage deals amidst rising interest rates, but lack the knowledge how to. This figure lowers to 12% for Brits aged 45-54 and 3% for Brits over the age of 65.

Simon Bath, property expert and CEO of iPlace Global, explains further: 

“Younger homeowners are particularly vulnerable to the significant changes in the mortgage market that have occurred over the past 12 months, mainly because they are more likely to have stretched themselves to buy when prices were higher.

“To make matters worse, at this stage in their life, the younger generation are more likely to have less savings to dip into, while the older generation of homeowners are more likely to have built their savings up that can act as a buffer while mortgage rates and the cost-of-living continue to fluctuate.

“While it is welcome news that some lenders are set to trim mortgage rates this week as the housing market slows and house prices continue to fall into the new year, they are still much higher than a year ago, which will be cause for some anxiety for younger homeowners.”